diff -u b/commerce_vat.module b/commerce_vat.module
--- b/commerce_vat.module
+++ b/commerce_vat.module
@@ -336,6 +336,10 @@
        $amount_to_reduce_left = $vat_price['amount'];
        $nonzero_components = array();
        foreach ($data['components'] as &$component) {
+         // Do not apply vat on vat components.
+         if (strpos($component['name'], 'vat') === 0) {
+           continue;
+         }
          if ($component['price']['amount']) {
            $nonzero_components[] = &$component;
          }